Keys & Credit

From Lake Cabins to Cash Flow: The Real Math Behind Second Homes and Rentals

• Bill Jerikovsky & Barb Miller

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Your lake cabin dream and your rental income plan aren’t the same thing—and lenders know it. We pull back the curtain on how financing actually works for second homes and investment properties, from real down payment requirements to the reserve rules that trip up first-time buyers. Barb brings a lender’s playbook: risk tiers for primary vs. second vs. investment, when you can (and can’t) count rental income, and what DSCR programs really consider. Bill adds the operator’s reality: why one rental can sink you, how scale stabilizes cash flow, and the hidden costs that blow up “break-even” spreadsheets.

We walk through practical ways to fund your first deal using equity—HELOCs and cash-out refinances—while being honest about moving risk onto your primary. Short-term rental fans get a clear checklist: check city and county ordinances, recorded covenants, licensing rules, occupancy limits, and insurance clauses before banking on Airbnb revenue. We also unpack the gray areas that cause trouble: occupancy fraud myths, renting out your old primary the right way when you move, and what happens if you change plans within that first 12 months.

Curious about alternatives like seller financing or contracts for deed? We outline when they can work, why they often favor the seller, and the foreclosure risks if there’s a hidden senior mortgage. Whether you’re aiming for a quiet cabin or cash-flowing units, you’ll leave with a cleaner decision tree: define intent, pick the correct loan type, model real expenses, secure reserves, and validate local rules. If you’re serious about buying a second home or building a rental portfolio, this conversation gives you the numbers, the pitfalls, and the path.

Enjoyed the show? Subscribe, share it with a friend, and leave a review to help others find Keys and Credit. Your feedback shapes future episodes—tell us what you want to hear next.


0:00 Setting The Stage: Second Homes vs. Investments

0:52 Down Payments, Programs, And Risk Tiers

2:36 Why Lenders Price Risk Differently

4:10 Primary, Second Home, Or Investment: No Workarounds

6:00 Reserves, Break-Even Myths, And Real Cash Needs

8:36 Scale Matters: Single Door Risks vs. Multifamily

11:05 Using Equity: HELOCs, Cash-Out, And Strategy

12:45 Local Rules: Airbnb Restrictions And Covenants

15:15 Seller Financing And Contract For Deed Risks

17:20 Landlording Costs, Evictions, And Hard Lessons

29:46 Closing Lines And Calls To Action

SPEAKER_00:

Welcome to Keys and Credit. The no fluff, no nonsense real estate mortgage podcast. I'm Barb, your straight talking lender. I am Bill the no bullshit realtor.

SPEAKER_01:

What are we talking about today? And Barb.

SPEAKER_00:

Financing your second home or investment property.

SPEAKER_01:

We're talking about second homes, cabins, lake homes, hunting properties, anything that involves not being your primary residence. Correct? Right.

SPEAKER_00:

Maybe someone's dreaming of a lake home, maybe looking for their first rental property. Buying a second home or investment property is exciting. My question the financing definitely works differently than your primary residence.

SPEAKER_01:

Financing always gets people.

SPEAKER_03:

Do you from both of your guys' perspectives, do you think that um buying a second home is more or less feasible than people assumed? Less. Less feasible.

SPEAKER_01:

Don't get me wrong, it's completely doable. But when people call us, they'll say, We'll use um we can't say names.

SPEAKER_02:

We'll use Joe Blow.

SPEAKER_01:

We'll use Joe Blow as an example. Okay. So they would call and say, Hey, we want to buy a second house. How do we do it? And you explain to them they need 20, 25% down. It's not a three and a half percent FHA mortgage. You actually need to put skin in the game. And it really deters people. It's not saying it's not doable, but a lot of people don't realize you need say they're looking at a$300,000 cabin, which is normal. That's a cabin is normal. That's crazy. Um and so 20% down, they're gonna need 60 grand.

SPEAKER_00:

Yeah, and some so for second moments, some some you can get no, that's investment property. Oh, okay. Some, depending upon the investor, you can get by with as little as 10%. Wait a minute, depending on the investor.

SPEAKER_01:

Let's go down a rabbit hole here. So invest in this stuff?

SPEAKER_00:

Yeah, there's many different investors that we use, and they all have different programs and guidelines. So on second homes, you can get by with less investment property, you're gonna have to have at least 20 to 25% down. But that's your rental properties. Maybe you want to buy a house as an Airbnb or maybe you're a window or something. Okay.

SPEAKER_03:

Now, why why is that? Because to me, it seems like if you're planning on making money with it, it seems like less risky than if it was a vacation home strictly.

SPEAKER_01:

You can't prove it. You can't prove it. So here's the thing that we come into too is some people want to do this second investment property, and they're gonna use they want to use the income they're gonna make on this property for their debt to income or as part of their income, right? Yeah, and they need what six months? Six to a year.

SPEAKER_00:

Well, it depends upon the program because that would get us into talking about DSCR loans, but we are gonna screw this up six ways from Sunday, but that's fine. But um, so back to your original question, why would it be more risky? Because you'd be getting income. Well, it goes in layers of risk on your primary residence if they're gonna lend to you if your credit score is good, right? And you have down payment and that sort of thing, and maybe you need down payment assistance, and we can talk about that in a future podcast. But on your second home or investment property, if you were to fall into hard times and not be able to make your payment, you're gonna let your second home or investment property go, not the roof over your family's head.

SPEAKER_03:

Yeah, I no, I and I totally agree with that. I'm thinking from the standpoint of like, if I'm gonna borrow someone my money, uh-huh, I would much rather them say, I plan on you making money with it versus I'm just having this as a fun spot. Okay.

SPEAKER_01:

You know what I'm saying? Yeah, I'd like to so let's go back on that. What if they've never done it before? So you're gonna give someone 300, 400 grand and say, here, go make money. They're gonna say, Well, we don't know how.

SPEAKER_03:

Yeah, but someone has done it before. Obviously, you have to show that you have an ability to make that money and have a plan for it right away. Yeah, you know, but um for me, it seems like it doesn't make sense that it's the same risk factor that it would be on a vacation home as an as if someone's buying it specifically for an Airbnb. Because the plan is I'm not gonna have to use my own money to pay for this versus second home. You you're you have to use your money.

SPEAKER_00:

So let's just say you have an Airbnb up in Keely. Well, sure, there might be snowmobilers that come, but you might not rent it out every week in the winter.

SPEAKER_03:

Right.

SPEAKER_00:

You may only rent it out in the summer. Well, you're still gonna have a monthly payment in December.

SPEAKER_03:

Oh, totally. No, and I I get there's risk there on both sides.

SPEAKER_00:

On the investment property, they will take 75% of your rental amount that you're gonna get and sometimes allow you to use that as income.

SPEAKER_03:

I almost wonder what the delinquency rates are on a investment property versus a second home. Because now that you say it like that, I would almost think that because you're not even planning on living in it, you're probably more predisposed to be like, I don't care about it. Yeah, you're not getting that's that's the problem. Where a second home sometimes you you like have sentimental value, yeah. Your family goes there, yeah.

SPEAKER_00:

You're it's maybe you're there every weekend.

SPEAKER_03:

Oh my gosh.

SPEAKER_00:

So you're probably not gonna let that go, but your investment property, it just has your renters in it.

SPEAKER_03:

Well, looks like I'm not lending anybody.

SPEAKER_01:

Are you looking at future plans to start lending on Airbnb?

SPEAKER_03:

No. What's going on here? No, definitely not.

SPEAKER_01:

Does your wife know what we're talking about right now?

SPEAKER_03:

I mean, my wife knows I can't afford anything.

SPEAKER_01:

She's the one that tells you what you're gonna afford.

SPEAKER_03:

Here's the thing uh half of nothing is still nothing. So I have nothing to give anyone.

SPEAKER_01:

Oh, there you go. There you go. Makes sense. Makes sense. No, that was, I mean, that actually made a lot of sense, you know, if you think about it.

SPEAKER_00:

Well, and so then they also reduce um reduce what your debt to income ratio can be.

SPEAKER_01:

If you have an investment. Yeah. Not a second. What if your second home? What if you use your second as an investment, say half and half? Can they count that?

SPEAKER_00:

It would be more an investment property purchase then.

SPEAKER_01:

Okay, so if if someone wanted to buy a cabin and they couldn't figure that out, could they say they're gonna use it as an investment and then use it as an investment to get them into their cabin? Does that make sense?

SPEAKER_00:

Yes, but then you're gonna need 20 to 25% down. Whereas if it's a cabin and you are truly using it as a cabin, maybe occasional weekends you rent it out to family or something, then you could classify that as a second home because the interest rates are different for primary, second home, and investment property.

SPEAKER_01:

And so the cheapest rates are with primary. So you know what questions coming next. Can they buy it as a primary second home and then Airbnb it out? No. How are you gonna know? How are you gonna know? Yeah, what if you don't what if you buy?

SPEAKER_00:

I mean, haven't you heard all the fraud on that on investment property? Oh, I'm sure, yeah.

SPEAKER_01:

On primary residence, we'll let Cody know because he's the one giving his wife's money away here.

SPEAKER_00:

So if you're gonna if you're gonna live there, you have to live there. You have to. You have to.

SPEAKER_01:

So it's not something you can just it's not a workaround, right? Where you can buy it at this interest or this down payment and change it. No, so it's gotta be one or the other. It's either your second home or an investment. Correct. Okay, okay.

SPEAKER_03:

I mean, there's a lot of variables here though. Like you buy it and have a 30-year note, and 10 years in, you're like, oh, well, sure. That's what I'm saying.

SPEAKER_00:

Well, so in the future, correct. You don't know where life's gonna take you.

SPEAKER_03:

But you can't go into it with that plan. You cannot ruling the bank. You cannot. Right. Of course. Okay.

SPEAKER_00:

That would be fraud.

SPEAKER_03:

But if you don't plan on that right away and you just do it anyway, it's 10 years down the line.

SPEAKER_00:

Ten years down the line. Cody's got plans here, too. A different, it's a different um he's very involved in this one.

SPEAKER_03:

You know, I'm just I'm just thinking of things, you know, that that I've always thought about. That's like I understand that why the rates would be different.

SPEAKER_00:

Uh-huh.

SPEAKER_03:

And I also understand why people would take advantage of that. You know, I'm just curious of how it works and how you guys figure that out.

SPEAKER_00:

Well, a lot of people they'll be they'll call me up and say, Hey, I I want to buy a new home as my primary residence. My job has changed. It's wherever, even 30 miles away or 60 miles away. I want to keep my house and rent it out. That's perfectly fine because that's something that's happening in the future.

SPEAKER_01:

Whoa, wait a minute. Okay, so you can buy a second home and then rent out your first one for income.

SPEAKER_00:

Yeah.

SPEAKER_01:

So how okay, so how come let's just say you know where this is going.

SPEAKER_00:

Yes, sure. Okay. So let's just say we'll use you as an example. Okay. I'm a good example. Yeah. You decide your premier residence in two years that you want to rent that out and buy a new home. Sure. That is absolutely fine. That can become your second home, but that wouldn't be an fraud or any of that. No, because that wasn't your intent at the time of purchasing.

SPEAKER_01:

Oh.

SPEAKER_03:

Yeah, see, that's what I don't like about it. There's a lot of gray area. And I feel like the average person, like myself, would be the one that gets in trouble with something like that. So your notes generally say you're gonna hide your property.

SPEAKER_00:

Yes, it's when you when you sign on a mortgage, it you're um certifying that you're gonna move into the property within 60 days and you're gonna use it as your primary residence for the next 12 months.

SPEAKER_01:

What are the consequences if you don't use it as your primary residence for the next 12 months? Say something changes and you decide to rent it out on month seven.

SPEAKER_00:

Well, you did state that, but um, you know, that you were gonna live in it as your primary residence.

SPEAKER_01:

Can you can you just call the lender and say, hey, you know what? Things changed.

SPEAKER_00:

I'm sure you could justify it. Okay. All right. You would just want to check it out.

SPEAKER_01:

All right. Okay. Boy, did we not go by any of this stuff. Thanks a lot, Cody. That was awesome. No, that was good. That was actually good.

SPEAKER_03:

Didn't mean to derail you. Just I just things that just barbed there for a second.

SPEAKER_01:

I kind of felt bad for her.

SPEAKER_03:

Yeah, I'm not, I'm not, I'm not trying to poke holes in it by any means. I'm just genuinely curious. But goes to show, she's just firing back and forth at both of us.

SPEAKER_01:

You know, I mean, yep.

SPEAKER_00:

But um, there are a lot of questions that people in the public think about. Like, hey, can I be an investor? Because that a lot of people want to do that to generate more income.

SPEAKER_03:

That's exactly what my question was gonna be to you actually next. Was that like how do I spend my wife's money? What would be the first couple steps for an average person like me to spend my wife's money on a vacation uh rental property or an investment property? How do you start? How do you start? How do you get started? Yeah, what would be the first steps you would take knowing what you know?

SPEAKER_00:

Yeah. So what you're gonna need is 20 to 25% down. You're gonna want to figure out where you want to buy this investment property, and we even do we can lend on apartment buildings, even. So let's just say you want to become an apartment uh building owner um and have seven units within it. We can even do those. Um, but you're gonna need 20 to 25% down.

SPEAKER_03:

Yeah. Is there any way around that? Not on investment. Darn. Okay. Well, I'm only 20 to 25% away from being able to afford it.

SPEAKER_01:

So he has zero percent right now to put into this game. That's so on the other on the other side. So when Barb calls and says, hey, I got someone that is approved for a second home or an investment property, there are restrictions on some of that too. So if you go into this situation thinking that you're going to buy a lake house, right, and you're gonna Airbnb it, it's gonna be great, it's gonna be your investment property, you're gonna make a bunch of money, and there's a restriction. Restriction on it?

SPEAKER_00:

Oh, yeah, with the property itself.

SPEAKER_01:

Yeah, because Airbnbs now are becoming more popular, okay, and neighbors are getting pissed. Counties, cities, townships are putting restrictions on new properties, restrictive covenants is what they're called, saying that you can't rent these out. Absolutely. And that sticks. So my job is to make sure you don't buy one of those with that intention. And you can't.

SPEAKER_03:

Well, and the thing is, uh, around here, there's a lot of Airbnbs around Pine City. Oh, yeah. But they have also put uh you know, rules and regulations on them that they can't do what they used to do, and it also costs money to run them. You have to have license for it.

SPEAKER_01:

And they'll be re that'll be recorded. We'll be able to see it, right? So on your investment property, say you're going to do an Airbnb, and it's gonna be well, we'll be able to see the rules, what's attached to that and what you can and can't do.

SPEAKER_03:

If it already is one, yep. But if it hasn't been one before, which is very common around here, yeah, then you wouldn't see that right away, would you?

SPEAKER_01:

No, and to have one recorded against a property after it's been built, if that makes sense, is a little more difficult than recording something on something that's new. Right. So when you say split off a property with the survey, you can record the survey and the restrictions all at once. Okay. When you buy a property, if you want to record restrictions, you kind of need a reason. Sure. Right? I mean, you can't just record, hey, I don't want Barb to live here. That's not how this works. Right. So it's a lot easier doing it beforehand. So if you buy an existing property, more than likely that restriction isn't there unless the city has a restriction against it. Because the way the way it's written is the strongest rule applies. So if a township doesn't have any restrictions, but the city does, you have to go off the city. Okay.

SPEAKER_00:

Well, and so I've rented a lot of Airbnbs, like when I vacation, and a lot will say, you know, because I have four children and they all have others and kids, and so I need big houses. Yeah, and it will say, you know, not to brag.

SPEAKER_03:

Barb only stays in bigger and big houses.

SPEAKER_00:

Well, because I have four kids and they're all married. Well, three married and grandkids.

SPEAKER_01:

It's fine, you don't have to justify anything. It's okay.

SPEAKER_00:

So, anyways, my point is is that some are like you cannot go above this number count because of their insurance. I guess you don't. And then you have to be quiet after this time, and we have neighbors, and oh yeah. So, yeah, a lot of things go into it. So, really do your research if you think that you're gonna do it. It is it is strange too.

SPEAKER_03:

I've been in a couple of Airbnbs where the homeowner is still in the house, uh-huh. And you just are, you know, in a separate part of the house, or you're in just a specific bedroom or whatever. I've the only one that's like that is that it's like a split level, uh-huh, and there's like another door that separates it. So you don't ever interact with them, but it is weird knowing like you their home right now.

SPEAKER_00:

Um yeah, I haven't had the opportunity to get like yourself. Where they where they're upstairs, because you know, once again, the ones that I've rented is for 14 people.

SPEAKER_03:

Yeah.

SPEAKER_00:

So Barb only rents big houses, just so everybody knows.

SPEAKER_03:

Well, also a lot of those big houses, it does specifically say like no parties. Right. It's like, okay, well, dude, you you just said on this listing it sleeps like 20 people. I know, right? What am I gonna do? Come in a you have a prayer group here, you know, like what obviously at some point someone's gonna have a party here.

SPEAKER_01:

Well, so we're talking about not like non-starters. What how many investment properties have you done? A lot. A lot.

SPEAKER_00:

So it works, it does work, absolutely. So the people that do it that are successful, yeah, absolutely. And they they rent them out um for you know year-long leases, two years, three years, four years. So some people like to do that as well. Like, I have a client that um actually has moved around the comp country and has kept the houses in all the states that they lived in, and they now rent those out. You know what I mean?

SPEAKER_01:

So when they do this second investment or the investment property, not second home. Um is there what they rented out for more than their mortgage? Does that make sense? Are they making money off it?

SPEAKER_00:

Oh, well, one would hope.

SPEAKER_01:

You want a cash flow of that? So I mean that's the goal. Is that how they got approved for it? This is what I'm what I'm going at, right? So say say they make enough money to make their current mortgage and that's it. They say, Barb, I have 20% down, 25%. My wife gave me a loan and said, you know, we can give this a shot, but I don't have any income.

SPEAKER_00:

Well, the wife wouldn't give them a loan, it would be a gift.

SPEAKER_01:

We're talking Cody here, it'd be a loan. But where was I going with that? Um, so they don't have any more income to make the payment except for what the house is gonna make. Oh, see what I'm saying?

SPEAKER_03:

So that's possible. It is, even if that's your plan going into it, that it's a break-even thing. Well you would approve that mortgage would get approved. That's where they had 25% down. Well, I mean, the plan is obviously always gonna be to make more money. Right. Right.

SPEAKER_00:

It depends upon if they have reserves though. Because we well, you know, other money in the bank that they're not necessarily using, whether it's a 401k retirement account.

SPEAKER_03:

Well, and it and it and break break-even is uh means something different to everyone, too, because break-even isn't necessarily paying the mortgage payment. There's still maintenance costs involved. Absolutely. And that would also be considered your break-even if you can just enough up over and above what your mortgage payment is to be able to afford the water heater going out or whatever, you know. A roof. So I guess the term break-even, I mean, that's kind of subjective. Right.

SPEAKER_01:

Well, that's and that's I mean, the risk factor has to be huge, you would think, on a lender perspective. Yeah. Saying you can't make this payment unless these people make their payment.

SPEAKER_00:

Because let's back up here, too. So when you're gonna own more than one home, there is a reserve requirement. Oh. In that 25% that you have to keep in your bank account. Yeah, that you have to have at the time of closing.

SPEAKER_03:

Okay.

SPEAKER_00:

So it's two months of your primary residence payment and six months of your investment property. Until your wife starts saving money.

SPEAKER_03:

And then you can go buy a brand new car. You can say open up credit cards.

SPEAKER_00:

Let's just say um your primary residence is two thousand a month.$2,000 a month, and your investment property is$2,000 a month for easy math. So you need 12 uh six months of that$2,000 for the investment, so$12,000. Right? Yeah. And then two months for your primary, so another four. So you need to have$16,000 in the bank above and beyond your down payment and your closing costs.

SPEAKER_03:

Okay, so is that uh, you know, when you're doing a primary loan, is that a normal thing that you also only on second home. Only on okay, that's what I was gonna ask. Because I've never been asked, you know. Wait a minute.

SPEAKER_01:

Have you gotten your primary loan yet? Or my new house?

SPEAKER_03:

Or your new house. No, actually, I'm gonna talk to Barb after this. I'm gonna get I need a pre-approval. I'm ready to get pre-approved, Barb.

SPEAKER_01:

Hey, look at that.

SPEAKER_03:

Well, look at how excited she gets. That's exciting. That is super exciting.

SPEAKER_01:

Uh, what the hell were we talking about?

SPEAKER_03:

Uh primary homes, secondary homes, barbs expensive, Airbnbs.

SPEAKER_01:

Oh, so okay, that's where I wanted to go with this. So when people call and say, I have the 20% down, okay. I want to buy a secondary home or investment, they still need this. Is why a lot of people don't buy second home or investments homes because it's expensive.

SPEAKER_00:

But it is a good idea if if I don't think anyone goes into it being like, this will be cheap.

SPEAKER_03:

Well, they you should hear the phone calls I get on a weekly basis.

SPEAKER_01:

Well, should I buy one rental home for 60 grand and rent it out for 600 bucks a month? No, absolutely not. Your furnace goes out, you're broke. Your roof goes out, you're broke. So when it comes to investment properties, you need scale, like serious scale. So one house will tank your finances if it goes south. One tenant can tank your finances. Well, because you know, um, you gotta be careful.

SPEAKER_00:

Yes, one tenant, sure, you're gonna have um a contract with them, right? A lease agreement. And if they choose not to pay you, you still have to pay the payment.

SPEAKER_01:

I'm not talking about that, I'm talking about destruction. Oh, oh yeah.

SPEAKER_03:

Actually, I have a great horror story about this. My first home I ever bought. Yep. It was I bought it for$115,000, which at the time was like, oh my god, this is more money than I could even fathom. I was 19. It was in Grand Forks, North Dakota. Long, long time ago. Yeah, 10 years ago. And um, you know, uh, I move out and I was renting it to a couple of friends the whole time I was there. So, you know, we stayed there very, very cheap while uh we had people renting. And when we moved out, we moved to uh to Pine City here. Um, we continued to just rent it out. The people that were there destroyed the house. I mean, they were running a puppy mill out of the basement, the doors were chewed up. I mean, basically I ended up having to put like five to ten thousand dollars back into it just to get it able to sell for a break-even. I think at closing I got like a hundred dollar check. It was a joke.

SPEAKER_01:

That's the conversation I have with new potential investment property owners. Bill, we have this much, we can only do one for the next 10 years. Absolutely not. Absolutely not. I work with quite a few uh investment property owners, and they they're successful because they have scale. So here, scenario, you're a scenario person. So say you have an eight-unit apartment building, four rentals, okay? This rental over here, the roof goes out. The eight-unit apartment building's income from that month will cover that roof. Okay, the other three are bringing money in, right? Say the apartment building's furnace goes out, the boiler. Those four rentals, the overage will cover that boiler to get it repaired with no without any money. Now, imagine if you only had one of those rentals and the roof goes out. Okay, you're only making 25, 30 bucks a month. The roof is now 15 grand. Where's that money coming from?

SPEAKER_03:

Yeah, I mean, that I think just gets factored into your plan going into it.

SPEAKER_01:

It does not, it does not. Most people do not think about that. Once they talk to me, they do. We'll lay this out for them, right? Before we even call Barb, we'll have these conversations, and usually it's a 90% kill. They're like, oh shit. I didn't crap, I didn't even think about that.

SPEAKER_03:

You know, I mean, I remember when I sold that house in Grand Forks that I broke even on, basically. Uh-huh. Um, I remember I got a really valuable piece of information from this guy who has a ton of rental properties. He told me, like, cheap houses attract cheap renters. Yes. And outside of Airbnbs, obviously that's short term, but when it's long-term rentals, it's like, gosh, if your rent is only$750 a month and you're barely getting by, you know, who are the people that are looking for$750 a month rent houses?

SPEAKER_01:

People are a big factor in this because you don't know who I mean, there are great renters out there. Don't get me wrong, some tenants are fabulous, they'll pay their rent for the next 20 years. You'll never have to worry about them. Right. Some will show up six months, give you security deposit, they won't pay for the next six months. Minnesota is a tenant state, it takes you four months to kick them out, and now you have a piece of junk you have to put tens of thousands of dollars into to start over.

SPEAKER_03:

Well, and I'm just completely speculating here.

SPEAKER_01:

We're talking horror stories that are it's not all bad.

SPEAKER_03:

But the lower rent prices are going to be the people who can just afford that. Yes. You know, people, I would assume both of you guys are familiar with this, but I think people buy at the top of their budget all the time.

SPEAKER_01:

I'm pretty sure someone on the other side of the camera here does that as well. Um but a pot. But I did that when I was divorced. Tippy top of what I could afford. That's where we're at. Yes, Barbie.

SPEAKER_03:

We're gonna shoot high for my pre-approval. We're gonna see if we can go for a milli. And then I'll settle, I'll settle for 200. And then we're gonna do an investment property.

SPEAKER_01:

Hey, investment properties with equity. Can you use your equity in your current home to finance your next second home or investment?

SPEAKER_03:

Absolutely.

SPEAKER_01:

A lot of people do, absolutely, right? So, all this money that we're talking about that you need, you might already have it. Well, you won't because you just sold yours, but you might already have it. And your wife's not giving you nothing. Yeah, she won't give me nothing. My wife, I'm sorry, ex-wife. I don't have to worry about that. Disregard. Disregard.

SPEAKER_03:

But that's so so with and and with what? Is there anything other than a HELOC, a home equity line of credit? You could do a cash out refinance on your primary. Okay. And some people do that to start their capital to do this. Yeah. Is that more beneficial than taking out just a whole separate mortgage? Well, you're just put take money out of your own pocket, obviously, is a huge benefit.

SPEAKER_00:

Right. Interest rate is lower on your primary than second home or investment property.

SPEAKER_03:

So you'll be paying less long term.

SPEAKER_00:

You can write off your interest on your um primary currently, but ask your tax preparer on it.

SPEAKER_03:

So word of the wise, you've been sitting on your house for a long time. It's worth a lot more than what you bought it at. Use it. You can you don't have to sell your house to cash out on that, what it's gained.

SPEAKER_01:

There is a stigma out there that you shouldn't refinance. You can't use your equity, blah, blah, blah. If you have it, use it.

SPEAKER_03:

Well, I think the stigma comes from the people that like gamble it away. True. That like, you know, use it as fun money.

SPEAKER_01:

Yeah. Well, or they they do it, they start over and then they do what they just did, whether it's debt or whatever it might be, and now they're screwed.

SPEAKER_00:

You know, they just used all the use it to buy us investment property, and the investment property goes south, and now you're stuck with the loan on your primary.

SPEAKER_01:

Right. Yeah. So oh yeah. Really sit down and get your goals. Yep. Think about it.

SPEAKER_00:

Do you want to be on the hook for that loan on your primary?

SPEAKER_01:

Bring your wife in before we start signing papers, just saying. We really involved voting.

SPEAKER_03:

Sorry, we didn't mean to throw you under the bus here, but hey, that's okay. She would too. She'd throw me right under the bus.

SPEAKER_01:

Oh shit. Oh, we're not cutting that out. That's going out there. She would admit it.

SPEAKER_03:

She would admit it.

SPEAKER_00:

Bring in the the dream quasher. Yeah.

SPEAKER_03:

Squasher. Dream squash.

SPEAKER_01:

Smasher. The dream smasher. I am the smasher of dreams.

SPEAKER_03:

So um, you know, let's say you're average middle class, average income person, and you want to get into rentals.

SPEAKER_02:

Yeah.

SPEAKER_03:

Would you say your best option is to either leverage what you already have in your current home or just save up money until you can get a second mortgage? What do you think is more common?

SPEAKER_00:

Um, a lot of people do take out home equities to come up with their 20% down.

SPEAKER_03:

Oh, okay.

SPEAKER_00:

Or to at least have a little cushion for that because also to your buying an investment property, it may need some work.

SPEAKER_03:

Yeah. So rather than financing the entire amount through a home equity line of credit, you just finance your down payment with your home equity line of credit.

SPEAKER_00:

Oh, okay. Or have some capital to be able to fix the house up. So you've got some options. You can get creative. You can get creative.

SPEAKER_03:

Can you um can you do I guess it it would be between you and the person you're buying it from, but can you do seller financing on a second home, vacation home, rental?

SPEAKER_00:

Yeah, if they want to do a contract for deed with it but that's just between you and that other person.

SPEAKER_01:

Contract for deed wicked, let me tell you, CDs are very biased to the seller. We're going through a couple right now. That's a whole different oh, of course. That's another podcast.

SPEAKER_03:

Yeah, we could talk about yay, but they're taking all the risk, they don't have uh, you know, a bank, a huge corporation backing them either. So that would make sense. Yeah, you have to have some reason to want to do it.

SPEAKER_01:

A contract for deed, just the way it's written, is biased to the seller because of the risk they're taking. Yeah, a lot of buyers don't realize that that it's not like a mortgage where if you do, you know, you default on a mortgage, you have right of redemption periods, you have sheriff sales, you have all this stuff, right? On a contract for deed, you got 30 days. That's it. There's there's no right of redemption, there's none of that stuff.

SPEAKER_03:

I mean, you can always work it out with the the seller, but I mean at the end of the day, you gotta give up something to get and this house.

SPEAKER_01:

I've done a lot of CDs, right? Sorry, sorry, I didn't mean to, you know, but a lot of CDs work just fine. So if you found an investment property that the seller wanted to make the interest off it versus just selling it outright, because you make some good money. Barb knows rate makes some good money off this interest rate. So if the seller wants to make the interest and they're willing to do it and the terms are good, do it. Why not?

SPEAKER_03:

And if you don't yeah, if you don't have the money and you want to still do it, obviously that's definitely the way to go.

SPEAKER_01:

Only way CDs get weird is if you default. Because that's when the fangs come out, the horns come out, the rules start getting thrown at you. You know, I mean, but if you don't default, it's great. Pay your bills. Pay your bills, just pay your bills.

SPEAKER_00:

As long as the CD holder doesn't uh default.

SPEAKER_01:

There, and that's another C there's so much.

SPEAKER_03:

They have a mortgage on the Oh my gosh, yeah. Could you imagine?

SPEAKER_00:

There was a lot of that going on with the meltdown during the meltdown. Oh, I bet. And so then people had bought these houses with contract for deeds, and then all of a sudden the bank comes and knocks on the door, and they're just the you know, CD uh the renter, call it, and the bank says you gotta get out, and they're like, wait a minute, I've been making my payment to John Doe, and they're like, Well, John Doe hasn't paid the bank. Oh you're out.

SPEAKER_01:

Isn't that crazy? Uh crazy. It gets so weird. It gets so weird. It's tough. Yep. And Minnesota's a tenancy state state. So could you kick them out? As a bank?

SPEAKER_00:

Well, yeah, because they're not the rightful owner. But you gotta wait for a little while. There's there's well a little bit. Yep.

SPEAKER_03:

Have you guys heard of um so much to it? I don't know if you can claim eminent domain in Minnesota. I don't think you can, right? You can. Okay, so it's a really long, long time. I can't remember the guy's name, but he started his own business of getting squatters out of houses. Oh. So what he does is he starts a um very, very low rate lease from you so that he is all he is legally renting a room or the property from you alongside the squatter, and then what he will do is he'll mess with the squatter for days, weeks, hours, whatever it takes to get them out. It's like playing super loud music right at their door, or like, you know, trashing the house, or you know, essentially pushing it.

SPEAKER_01:

I bet you a lot of investors use this guy just to get him up. Yes, you know, definitely.

SPEAKER_03:

Yeah, he's got a big YouTube channel. I can't wait.

SPEAKER_01:

All the different ways to make a dollar. We were just talking about that before we started. Yep, yep.

SPEAKER_00:

Oh, that's a good idea. Yeah. Sometimes it can be that's the other thing to think about on an investment property is if someone's not paying, you're now have legal fees to go to court to get them out, and you're not getting paid the rent.

SPEAKER_03:

Because you're a landlord. You are essentially a landlord. If they're not able to pay you, are they gonna be able to pay a lawsuit?

SPEAKER_00:

You know, like obviously but you're trying to get them out, yeah, so that you can rent it to someone else. Right. But that all takes time.

SPEAKER_03:

Ugh. So I hate it. I'm not buying any rental properties anytime. Today, anyways. Yeah, not today. Well, we'll see tomorrow. We'll see. Oh, I'll ask my wife for some money. Maybe I will.

SPEAKER_01:

You ain't getting shit.

SPEAKER_03:

We know.

SPEAKER_00:

You're not fooling anybody. Thanks for tuning in to Keys and Credit, where the only thing inflated isn't the market, it's your knowledge. If you found this helpful, share with a friend. Tune in next week, leave us a review. It helps us more than you think.

SPEAKER_01:

More than you think.